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The Failure of the Second London Gold Pool
By Adrian Douglas
This article is a sequel to my article entitled“Gold Market is not “Fixed”, it’sRigged”which is essential reading before reading this article. The previous articledemonstrated that had a trader consistently bought gold on the London AM Fixand sold it the same day on the London PM Fix and repeated it every day fromApril 2001 through to today the cumulative
loss
would be $500 per ounce. Yetgold has been in a bull market during that time and a “buy and hold” strategyover the same time period would have returned a gain of $950 per ounce.I have termed the arithmetic difference between the PM Fix and the AM Fix the“intraday change.” Figure 1 shows the evolution of the cumulative intradaychange from 2001 to 2010 along with the gold price evolution as expressed bythe London PM Fix price.
Figure 1 Cumulative Intraday Change & PM Gold Fix Price (2001-2010)
This chart shows that an entity (or more likely several entities) is consistentlyselling gold into the PM Fix in such large quantities that the selling suppresses
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the gold price to the extent that the cumulative intraday change is negative whilethe gold price has been increasing. The entity doing such selling must haveaccess to a large amount of physical gold and must not be interested in sellingfor profit. The only possible culprit is a central bank or several central banks. Asthe central banks do not trade directly, there must be bullion banks who areacting on their behalf.The London Gold Fix is conducted by the representatives of five bullion banks:HSBC, Deutsche Bank, Scotia Mocatta, Societe Generale, and Barclays. The“fix” is no longer conducted in an actual meeting but by conference call. Thebullion banks’ representatives communicate with their trading floors and witheach other during the conference call to find the clearing price at which all buyinginterest and all selling interest is balanced. When this price is determined theprice is said to be “fixed”. This is exclusively a physical gold market activity. It isbalancing the number of bars of gold for sale with the number of bars demandedfor purchase at a particular price.It follows that if buying and selling were matched at the AM Fix price but then thePM Fix price is lower, then significantly more gold is being offered for salecompared to demand at the time of the PM fixing. The trend of the cumulativeintraday change in Figure 1 shows that the selling into the PM Fix is manipulativebecause it has consistently countered the primary trend of the market and hasproportionately increased as the gold price has increased. The PM Fix is thetarget for manipulation (price suppression in this case) because it stands as theglobal bench mark price at which physical gold trading is done until the followingAM Fix, -- that is, a period of 19 ½ hours each day.Though the official London Gold Pool disbanded in 1968 when it sufferedmassive outflows of bullion trying to frustrate free market forces that weremanifesting themselves as insatiable demand for the metal, someone is nowoperating, albeit covertly, a second London Gold Pool. However, what I will showunequivocally in this article is that this “Second London Gold Pool” is about tosuffer the exact same fate as the first one did..
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Figure 2 Peaks Marking Climax of Increased Selling into the PM Fix
In figure 2 the same data as in Figure 1 is presented except it has been truncatedto October 2008. The solid blue line shows that there is a long-term trend in theevolution of the intraday price change that is responsible for the generalsuppression of the price. However, what is also apparent is that there are manyoccurrences of the cumulative intraday price change deviating downward fromthis baseline trend and returning back to the trend. These are periods ofconcerted and increased dumping of gold into the PM fix. The red vertical linesmark the turning points of maximum departure of the cumulative intraday pricechange from the solid blue line that defines the average long-term trend. In otherwords, these lines mark the climax of selling into the PM Fix. It can be noted thatthese lines intersect the PM Fix price curve at almost exactly the lowsimmediately following a price peak. This means that when the intensity of sellinginto the PM Fix increases (an increasing downward excursion of the blue curveaway from its trend line), the gold price makes an intermediate top, and when theintensity of selling into the PM Fix recedes (the blue curve returns toward itstrend line), the gold price makes a bottom.This is not a matter of traders selling into the market to take profits when theprice reaches an interim top, because the selling is consistently forcing the PMFix price to be lower than the AM Fix even during price rallies. The selling isclearly conducted such that when considered over several days buying betweenthe fixes is not allowed to be more dominant than selling. It can be seen that after
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